The federal stimulus package isn’t doing anything to boost the economy and is in fact having the opposite effect, well-known economist Arthur Laffer said during his address at this year’s Houston Growth Summit.

Laffer was the keynote speaker at the May 19 summit, one of the first in a series of events that make up the Houston Business Journal’s four-day Celebrate Enterprise forum.

About 300 business leaders gathered in downtown’s Wortham Theater to hear Laffer’s keynote address on the state of the economy. He was joined in a panel discussion by Ted Jones, senior vice president and chief economist for Stewart Title Guaranty Co., and Professor Stephen Klineberg of the Institute for Urban Research at Rice University.

Laffer told the crowd, which often broke into applause after his comments, that the best course of action during a time of economic crisis is for the government to do nothing and to let the economy correct itself in due time.

“I’ve seen politicians make panic decisions, and they always turn out to be a train wreck,” said Laffer, who was a member of President Reagan’s Economic Advisory Board and is now chairman of Nashville-based Laffer Associates and Laffer Investments.

During his keynote, Laffer took President Obama’s stimulus package to task, saying that it has done nothing to stimulate the economy and has only continued to strain the federal deficit.

“You can’t give people resources without taking them from someone else,” Laffer said. “Income effects in the economy always sum to zero.”

Laffer, who revealed that he actually voted for President Clinton despite his own Republican-minded viewpoints, said that while people who are given money and rebates as part of a stimulus package are stimulated, those who have it taken away are de-stimulated, creating a cascading effect in the opposite direction than was intended.

In his short-term outlook, Laffer said he expects things to get worse before they get better, due in large part to Obama’s decision to let President George W. Bush’s tax cuts expire on Jan. 1, 2011.

He believes individuals and companies will shift income out of 2011 and into 2010 to avoid the extra taxation, which will make 2010 look better economically, and 2011 look worse.

“I’m very concerned about the U.S. economy in 2011 and beyond,” he said.

Jones and Klineberg added some local flavor to the discussion by pointing out Houston’s ability to remain fairly stable during the recession, but both stressed that the local economy is by no means out of the woods.

“Houston is different, and Texas is different,” Jones said. “Houston went into the recession later and didn’t go in as deep, and we’re recovering earlier. But we are still in a recession, and I don’t see economic recovery fully happening in the next 24 months.”

Klineberg also pointed to the severity of the downturn in Houston, based on his “Houston Area Survey.” He said only 20 percent of respondents in the most recent survey said they have been faring better financially over the last three years than in previous years, which was the lowest percentage in the survey’s 29-year history.

Klineberg outlined the importance of the continuing shift in Houston’s demographic makeup, where the Anglo population continues to decline and the Hispanic and African-American populations continue to grow.

“No business is going to succeed if they don’t react to the changing demographics and the ethnic transformation that is going on in Houston,” he said. “It could either be the best asset Houston has, or it could tear us apart.”

Laffer and Klineberg disagreed when it came to education, with Klineberg saying the government needed to make investments to better educate Hispanic and African-American children, saying such efforts were as important as “dredging the Ship Channel,” but Laffer argued that higher-paid teachers don’t necessarily turn out better-educated students.

For the short-term, both Laffer and Jones put the task of creating jobs squarely on the shoulders of private companies, not the government, with Jones saying that until companies prove they can create sustainable job growth, Houston — and the rest of the country — will not fully come out of the recession.

Laffer believes that more moves like the stimulus package will not help America get out of the recession, but instead will only postpone recovery.

“Not only does the stimulus package not stimulate, it hurts the economy,” Laffer said. “It makes it worse — a lot worse.”